Associated gas & NGLS – much ado about nothing much for winter?

We’ve just completed an analysis we do a deep dive into a balance of 2020 forecast for gas and NGL supply in key oil producing regions that reflects the steep cuts occurring in response to current crude oil market conditions.  Our analysis indicates that even if the 30-40% May oil production cuts that have already been reported in North Dakota and the Permian Basin aren’t as high in June and July, the potential impact on NGL supply in key markets from pre pandemic levels will be significant, particularly for propane.   This is due to the high NGL content in gas coming from so called “associated gas” wells that primarily produce crude oil.

By contrast, the supply impact on “dry” gas coming into the market from these wells will likely not have the major impact on gas markets that some forecasters are hoping for.   This is because oil wells produce less gas per barrel than wells that produce mostly gas and gas condensate, and because demand for exported LNG has slowed significantly.   There’s also time to increase winter gas supply via incremental drilling in the “dry” gas plays if needed to boost winter storage.   But this gas doesn’t contain enough NGL to offset the loss of associated gas, which has implications for exports and winter heating markets.      This forecast uses a base case for oil production that tapers supply in Q2 to a level about 25% lower than December 2019, recovering in fall and winter 2020 to an exit rate for 2020 of 16% lower than 2019.    For reference, the estimated decline rate for shale oil production is between 50-60% in the first year without replacement drilling. For information on getting an excerpt of the study, please see our page.